Q linea AB

STO:QLINEA

Earnings Call Transcript 2020-Q1

[Operator]

Ladies and gentlemen, welcome to the Q-linea Q1 Report 2020. Today, I'm pleased to present CEO, Jonas Jarvius; and CFO, Anders Lundin. [Operator Instructions]Speakers, please begin.

[Jonas Jarvius, CEO & President]

So thank you very much for that. And welcome, everyone, to the Q1 report for Q-linea. So I suggest we get started with the presentation, and I'll describe the layout for the call today. I would just, first, briefly like to show the disclaimer slide on Page #2 in case we do any forward-looking statements or announcements during this call. Having said that, I think we move directly into Slide #3. And of course, during this call today, we'll talk on the big highlights of the year. Of course, one of the top, top highlights was the agreement with Thermo Fisher Scientific on the commercialization of the ASTar system, and I will go through that in more detail. I will then look into the various aspects. And I think we have moved through a very strong quarter, although we have very turbulent times. And I'll go through those with you as well. I will also finalize and summarize my part on the effects of the corona pandemic on Q-linea as such.But that's the layout for the talk. If we then look at Q-linea in brief, we are a company working with developing disruptive solutions for faster infectious disease diagnostics. The first product, focusing on sepsis diagnostics.As you know, today, infectious diseases is a large area, and it's a growing area. And which we can see also during this big corona pandemic, infectious diseases has, I would say, again, an even higher highlight on the value added to that healthcare providers, but also the patients, of course.Q-linea as a company are located in Uppsala. As you can see on the top part of the slide, we have now 3 facilities here in Uppsala. On the left, we have our main headquarters where we have R&D product development. We also, during this quarter, opened our marketing or commercial department, as you can see in the middle. The purpose here is, of course, to enable training of customers, doing demos, but also training sales personnel for -- from Thermo Fisher. Of course, during the current restrictions, we can't do that live, and we have to do it electronically. But I look forward to the upcoming month here where we might be able to have people in person coming to this facility.Also proud to announce, as you can see, to our products, right on the top of the screen. These are new production facilities for consumables. And I will go into a bit more detail around that. But that, of course, is a key landmark that we accomplished during the first quarter of this year.As you can see, also the highlights of the partnership with Thermo Fisher. We'll talk about that separately. I would also like to stress that we are now currently producing both instruments and consumables fully in Sweden. And I think that it's been a very strong tactical, strategic decision to do so. And we are now up and running here in Sweden.As of last quarter, we had 140 employees and consultants working in the company, fully according to plan we have for this year. We also have now shifted the goal of presentation of ASTar to the market. The first call was at ECCMID in Paris in April. But this will now be done in electronic events. Just to the right of picture, you see our lead product, ASTar, with the consumables corresponding to that.So if we then move on to the highlights for the quarter. I would just briefly, first, on Page #4, give you a little bit more in-depth system features of ASTar. We have been developing this system over a long period of time, working very close with customers in Europe and U.S. and really trying to find how we can best build a product that will meet the workstream requirements for the customers, the volume requirements for the customer and also the technical requirements. And the 3 highlights that I decided to show here is, of course, if you're going to do an antibiotic acceptability testing today, it needs to be rapid. So the ASTar will do a full analysis in 3 to 6 hours from a positive blood culture, giving a very comprehensive answer. This is coupled to the blood culture -- the nature of blood cultures and the background that you will find there. The technology can be much faster for other type of samples such as urine.It also needs to be simple to use. So it's a fully-automated system. You have less than a minute hands-on time. We're loading a sample into ASTar. You have the capacity to load 12 patient samples in parallel, and it's a random access-based system. Meaning that if you have a free capacity, you can, at any time, load a new sample into the system. The throughput is also high, which run up to 50 patient samples by 24 hours in the system.What we think is also a requirement is to have a comprehensive solution. And comprehensive, coupled to AST, of course, providing a broad antibiotic panel and a broad concentration range. Meaning that you can act -- truly act upon the results of the assay, and you would have a minimal need of follow-up testing. That's the goal, of course.But comprehensive can also mean that the system is already prepared to analyze future sample types. We have shown data from positive blood cultures, of course. We have also been running clinical isolates and also urinary tract samples already. And the way we have formulated our consumables means that for these various sample types, you can use parts of our consumables for the full package. And that also means that we can then address various market segment at various price points. So that's an overlook of the ASTar system.If we then move into the highlights for the first quarter, we start with Page #5. The first one I would like to talk about is, of course, the global partnership with Thermo Fisher Scientific. It's been a long, long road for us, and it's been a long commercial goal to have a global partner to sell and distribute the ASTar system. We have been in contact with many of the biggest player in the world. And we're so happy to be able to announce that we now are working with Thermo Fisher.Some key aspects of the contract is that it's worldwide exclusive for rapid AST, apart from Sweden, where we can also address the market. It's also a mutual exclusivity for rapid AST, meaning that Thermo Fisher has selected ASTar as their go-to-market solution for rapid AST testing.So it's also important for us as a company is that we have a possibility and will share customer data with full insights in the sales process. We will also participate with our application specialist service engineers at various parts of this process. So I think it's a very good, strong relationship.And of course, our mutual goal is that we bring the best customer experience with our unique respective trend. We will help bring a unique system and technology that we have developed together with customers through this mix. Thermo Fisher, of course, have a very strong brand, worldwide presence. They have a clear, proven track record of selling high-quality products to this particular customer group. And they have very firm relationships with those customers.We also, of course, will need to have a high-quality service organization and expert elevated support enabled to have a successful launch of our system.I think one thing that's particularly important and interesting also for us is that due to the partnership, we can now have access to high-volume customers earlier. This could be very big institutes that will take years actually to be able to sign a product to. But with this partnership, we could together address these customers faster. So I think that this is probably one of the biggest commercial milestones for Q-linea, as such, as a company, and I'm truly proud about this collaboration.Currently, of course, we can't meet in person. Although, we have met in the past, for sure. But we are now having a lot of active meetings electronically, sharing and working towards clinical study alone for ASTar.If we then move on to Page #6. I'm also very proud and happy to announce that we have now solved the problem with the third-party component that we announced last year. It's been a true focused effort from both parties, both our supplier and, of course, internally. And together, we've managed to, quite rapidly, identify the corrective measures needed. And after that, we have been in a very long and extensive testing period on quite a big number of systems. And what we can announce, and we did that on the press release earlier this quarter, is that we have now seen no error at all since November on any of these systems. So we could clearly tick this box as the problem being solved.If we then move on to more of the preparations for the clinical studies. We are running according to plan with the internal reference MIC testing. And we have, today, characterizing a bit more than 80% of the 650 isolates that are estimated needed for the study.If we now look at the upcoming clinic study with respect to sites, we are progressing according to plan. We are also in detailed discussion with selected clinical sites to shape and form the study itself. But we're also investigating adding possible additional sites. And this is, of course, because we cannot, and I don't think anyone can, predict the effects of COVID-19 and corona over the upcoming month. So we would like to be as prepared as possible. And we have a very strong interest for various sites to participate. So it looks, so far, very promising. But I want to stress that the situation we are and the world are in today, it's very hard to predict how the next 6 months will look like or the time following that. But so far, it runs according to plan.If we then move into Page #7. We could also announce during this quarter that we have now opened our new production facility. This is focused then for consumables. The project was delivered on budget and on time. And we have started assembly and production in those facilities. The overall house is 1,500 square meters in total. And we have close to 400 square meter ISO8 Class C clean room. So we are well equipped now to start producing under very good high-quality standards. And we are also ready to be able to scale up the production for future higher volumes.So currently, what we're doing in this facility is, of course, all preparations that's needed to produce the validation batches for the upcoming clinical study. And the work progresses well according to plan so far.If we then look at the corona effects on the production. Well, I would say, so far, we have minimal effects on delivery of components or parts due to the corona pandemic. So we have not seen any delays coming from shipment of other parts. And as I mentioned also earlier, we do produce a lot of these key components here in Sweden, some of them in Uppsala as well.This situation may, of course, change on short notice because we are still, of course, depending on third-party suppliers and their respective capacity. But so far, it looks very, very good.If we then move on to Page #8. We have a couple of key events after the end of the period. And as most of you, I'm sure, have seen it, of course, all May trade-shows have been canceled. We planned, initially, to present ASTar to the market at ECCMID in Paris. That has been canceled. And also, the follow-up, very important conference, ASM in the U.S., has been canceled. So this is the reality we are facing.Of course, what we're now doing then is trying to work out an electronic program to be able to present ASTar. And we are now in deep discussion with Thermo Fisher Scientific on how and when to present ASTar to the market. And it's progressing quite well. And we're trying to find really the best timing and the best solution to be able to give our future customers a good experience in the touch and feel of ASTar although they can't see it in person.And I think one thing that adds to this type of partnership is that we are -- when we are in situations such as this, we can clearly see the benefits of having a strong partner with a broad reach, meaning that we can have access to much, much bigger network than we could have allowed ourselves. So I think that's good. And I'm really looking forward on being able to provide this electronic market presentation of ASTar.Then finally, on Page 9. For my part, I just want to comment a couple of issues on the corona pandemic. And of course, this is a true, true tragedy to everyone that has been affected, who has a relative that have died because of this disease. And our thoughts go out to, of course, to all people that have been affected by it, all the healthcare workers that are doing a truly excellent job throughout the world in providing care for these patients.If we then move internally to Q-linea. What we can see is we made a couple of very important strategic decision last year. And one of them was, of course, to move all production of consumables from China, where we had production earlier, to Sweden. And of course, in retrospect, that was a very important decision for us. If we had not done that, we would have been facing delays in the project. So that is really something that I'm happy that we did. Of course, we had no idea of the corona situation at the time. We did it for other strategic reasons.Another thing is that we are currently in a phase where we're preparing ASTar for clinical studies. We do verification, testing and so on. And most of these activities are coupled to the [ the ones that ] are still internal activities. So far, our staff has been healthy overall. And we, of course, also have adopted new guidelines and work opportunities.We also see a very strong interest for our clinical partners to perform studies. And I think that the importance of rapid diagnostics for infectious diseases has become even more apparent under this situation we face around us now. So the interest is clearly strong to perform the studies. What we see here in the study is that depending on the drug restriction and the availability of the sites for the U.S. study, we do see that might be impacted. So there is something we are continuously analyzing. We also know FDA approved us to be one part of the U.S. site. And that's approximately 1/3 of the U.S. study. So we are really pushing on towards our European study, of course, pushing on to the part of the U.S. study we can do. And we are also, of course, looking for when the situation might change. It could mean that the U.S. study is slightly prolonged if the situation changes, which could be [indiscernible]. But today, it's too early to tell.If we then look at the new work environment that we have. Of course, we have more people working from home. We have social distancing teams. But so far, I would say that it has really a minimal impact on the project during the first quarter. Now we're moving into the second quarter. And of course, it may change when we're moving into further into verification, testing coming up to validation. But again, so far, I think we have managed as a company very well to deal with the situation. What we can see in the future is that we may encounter delayed deliveries of components. As I said before, we do rely on third parties for various components. And of course, what we try to do now is see other components we could stockpile, just to be safe in the future. We're trying to do all those mitigating actions. But I would say that we are actually leaving a very, very strong first quarter. And of course, we're looking very positive on the future. But we also have to be very, very aware that the situation might change on a very short notice.So that was really my part of the presentation, and I will now hand over to Anders Lundin, our CFO, to take you through the financials of this period.

[Anders Lundin, Chief Financial Officer]

Thank you, Jonas. I'm now on Slide 10 and would like to walk you through the financial statements of the company for the first quarter. We had a very limited sales in the quarter of SEK 0.2 million. The operating results for the quarter was minus SEK 55.9 million, close to minus SEK 56 million, which is above the reported loss after tax as we have reported. This gives us an earnings per share of minus SEK 2.44.So going to the next Slide 11, which is the balance sheet. And there I have listed our financial assets, cash and cash equivalents, about SEK 28.3 million. We have invested in short-term fixed income funds where we now, in the end of March, have SEK 89.8 million. We have also invested in listed bonds. The short part of that, meaning that they are due within 12 months, is SEK 27.9 million. And the noncurrent part of the listed bonds is SEK 115.2 million.So the cash flow on Page 12. We have the cash flow from operating activities, minus SEK 59 million. We have investing activities of positive SEK 61.6 million, which basically is when we divest short-term investments to fund our operations. And then we have the financing activities of minus SEK 0.1 million. And compared to last year, first quarter, we have an increased cash outflow, which mainly is due to the larger operating loss we have.So if we have to gather our financial assets, then that could be converted into cash relatively quick. We have the cash and cash equivalents. We have the short-term investment and the listed bonds. By end of March, we had SEK 261.2 million compared to the SEK 327.5 million we had by the year-end.So with that, I conclude my presentation and hand over for questions.

[Operator]

[Operator Instructions] And our first question comes from the line of Ulrik Trattner from Carnegie.

[Ulrik Trattner, Research Analyst]

I have a few questions, if I may. I think I'll just start off with, which is, obvious, an interest of yours as well, which is on the Thermo Fisher deal. I'm kind of -- what I'm looking for here is a more specific information regarding the deal. Is there any minimum volumes? Or is there anything more specific that you could disclose at this point? Or is this something that is obviously that's going to be non-disclosed?

[Jonas Jarvius, CEO & President]

Yes. Ulrik, thank you for the question. Yes, currently, these are numbers that we cannot disclose at this present. So I'm sorry about that.

[Ulrik Trattner, Research Analyst]

Okay. And do you believe -- or will you have any business update in regards to Thermo Fisher's engagement in microbiology? Because this sector has obviously been dominated the last few years by Bruker and bioMerieux. And although they have a legacy presence in this industry, it's still fairly small considering the performance of bioMerieux and Bruker. So will there be any update in terms of their strategic view on this and what they're aiming to do?

[Jonas Jarvius, CEO & President]

No. I mean, first of all, I think that strategically, Ulrik, Thermo Fisher will be communicated by Marc Casper to the whole world. What I've mentioned also on the slide of the agreement is that I think we have a very common view between the two companies on really what's needed to change this market and to help provide a better outcome for these patients. So I think that's really what I can say now. And I see them as a very strong company, providing the reference MIC testing platform and a lot, of course, of other assays that are important for these particular patient group. So I don't have any particular more detail that I can provide at this point. But we do see a common vision for the future for this entire area. That I can say.

[Ulrik Trattner, Research Analyst]

Okay. Just moving over to COVID-19 and the situation. And you're, obviously -- it doesn't seem like you're too concerned about the time trying for the clinical study, at least, in Europe. And in regards to the capacity in the microbiology lab at this moment, how has that changed since the COVID-19 outbreak? Since also the initial study that came out from China suggested that majority of the patients who died from COVID-19 died of sepsis, and it would be then assumed that capacity or the inflow of patients into microbiology labs would have increased? Or what have you seen so far?

[Jonas Jarvius, CEO & President]

Now I think that's a very interesting comment. I mean, as you say, I mean, if you look back to the biggest pandemic we had, the Spanish flu at the beginning of the 1920s, in retrospect, one has seen that around 80% of the patients that actually died from that died from sepsis, from a pneumococcal infection. And as you say, there are some other report showing that the respiratory virus, also this SARS-CoV2 are also leading to sepsis in many cases, of course, opening up for bacterial infections. So it's too early to tell that through statistics. But I think that when we look and talk to our collaborating hospitals, a positive blood culture coming in from the patient, no matter if it's from a COVID-19 patient or others, are patients that could be used actually and be enrolled in this study. So from that regard, I think the influx might have increased because of this, I would say, tragedy overall. So in that sense, we don't see any sort of hindrance. It might actually provide additional statistic data points for the study to be sort of -- to be quite honest for that part.

[Ulrik Trattner, Research Analyst]

Okay. Great, great. That's what I thought. And then just moving on over to the cost side. Since there's been quite a steep uptick last 2 quarters on the -- especially on external costs relating to build out production capacity of the consumables. Are you done with those investments now, or will these carry over to the next few quarters as well?

[Jonas Jarvius, CEO & President]

So what I can say is we don't really provide a future outlook for the cost. Of course, we had a very big investment cost in building up the new production sites. And then, of course, looking at future volumes, that would require investments to scale up according to volume going forward. But timing for that scale up is, of course, to be decided a little bit. But it's -- I can't say that we have done all investments for that part. We do, for sure, see some coming in the future, but we don't have any details to provide on that. It's very, very positive though that we can now have the opening of the new facility and having it ready and starting to produce in it. So I think that's really the big commercial step for the company to be able to do that on a very good control environment, which also enables us to scale up for future volumes.

[Ulrik Trattner, Research Analyst]

Great. And then just a last question. It might be hard for you to answer. You have SEK 262 million in cash or financial assets as of now. Do you see -- from a strategic point of view, do you see any options that you could license or commercialize or sell the commercial rights for the ASTrID system to boost up your balance sheet short-term? Or is it something that you would rather keep in-house?

[Jonas Jarvius, CEO & President]

I think when we look at Q-linea as a company, I think we are truly unique. You may remember from even the perspectives, we have, of course, the ASTrID system technology that we actually demonstrated from a very early contract level on patients. But we also have other technology that we are looking into. And we mentioned, of course, about blood culture cabinets. So I think that -- of course, we as a sector company and within the Board, always will continue to evaluate what's really the best value to our shareholders and for the company for these various products. But I can't say we have any detailed or short-term plan that we have currently for that.

[Ulrik Trattner, Research Analyst]

Okay. Have you presented the ASTrID instrument to Thermo Fisher? Or have they asked for a demonstration of it?

[Jonas Jarvius, CEO & President]

So I mean, what we have been in these discussions with Thermo Fisher and other parties. I mean there have been discussions for several years. It's been a long-term discussion. So Thermo Fisher is fully aware of ASTrID's capabilities, for sure. I would also just like to stress that this commercial agreement is focused on the ASTar platform. That's what we have signed and agreed upon. But of course, there might be very interesting possibilities for us given other products in the future to come. But we are not really ready to give guidance or a specific direction on that.I could mention though, which I think is a little bit interesting, I mean, ASTrID is our platform which do a highly multiplex ID followed by an ASG. But ASTrID was truly focused on direct from patients. And that was the data we demonstrated, meaning you don't need a culture to grow it. But that technology has also been presented earlier from basically the time around when I was a scientist where that technology could be used to sort out all then currently known implants or strains in one single assay. So of course, as a company, you always look at various opportunities for the technology portfolio you have in the company. But it's really too early to give any direct guidance on it. But I think it's a very strong position to have ASTar coming closer to the market, but still have a couple of unique, very interesting products that we can look for, for the upcoming years.

[Ulrik Trattner, Research Analyst]

And it is within your right to actually sell the commercial rights to the ASTrID system to anyone, not only to Thermo Fisher, right?

[Jonas Jarvius, CEO & President]

No, that's correct.

[Operator]

Our next question comes from the line of Alex Cogut from Kempen.

[Alexandru Cogut, Analyst]

I just have a couple of questions with respect to revenue related to the Thermo Fisher collaboration. I understand you cannot disclose specifics, but can you give us a sense of timing of any revenue that could come this year? Or are there any specific milestones that could have some revenue attached to it that would come in the near term?And then I have a couple of other questions.

[Jonas Jarvius, CEO & President]

Okay. Thank you very much, Alex. So I can't actually give you a precise point where we expect revenue. Of course, I mean, the -- really the goal we have now is performing our clinical study, having the product approved in the regulated markets. Of course, what it would mean is that through a partnership, one has to be able to put those systems then out to the market, meaning that you most likely will have to order them a little bit before that timing happens. So that's some sort of guidance. But I can't give you the exact timing on that. But I'm looking hopeful for that type of scenario in the coming periods here.

[Alexandru Cogut, Analyst]

Okay. But could you give us a sense of -- is your deal composed of certain milestones with regards to launch? Or is it purely a revenue split on -- or a royalty stream? Or how can we think about it?

[Jonas Jarvius, CEO & President]

So we haven't announced -- we have not been able to announce all details of the study. So today, I can't really give you guidance if it's a milestone-based or, as I say, a revenue-split agreement. So with that point, I most likely would have to be able to present or say it out for you when there are stuff coming in revenue. And then, of course, one can look at that, at that point. But today, I can't give you those details, unfortunately. We'll be happy to do it, but I can't do it on the current contract.

[Alexandru Cogut, Analyst]

Okay. And then with respect to cost, again, I understood you don't want to give guidance, but the increase in Q1 has been significant, which obviously has some explanations. But is this a level we can expect through the rest of the year? Or how should we take a look at it forward?

[Jonas Jarvius, CEO & President]

Yes. So as you see, I mean, we are currently ramping up a lot in the production facility. Of course, we are also running a lot of systems at Q-linea, and that, of course, holds some expenses as well. So what we see here going forward is that we will continue to increase investments primarily in production scale-up and equipment around that. So we do expect to see some increase going forward, but we don't see it to be a continuous steady slope upwards, I would say.

[Anders Lundin, Chief Financial Officer]

Yes. I can also point you in one direction. In the report, we are saying that the SEK 261 million that we have accessible, we claim that these -- we claim that these will be sufficient for the next -- at least the next 12 month.

[Jonas Jarvius, CEO & President]

Yes. That's right.

[Operator]

[Operator Instructions] And our next question comes from the line of Arvid Necander from Redeye.

[Arvid Necander, Analyst]

Okay. Just a couple of quick ones for me. First, addressing COVID-19 and the impact, considering all the restrictions that hospitals are putting on visitors and et cetera, are you still expecting to be able to put systems for customer evaluation and laboratories in the near term? Obviously, very hard for everyone to assess the situation now. But what's your take on it?

[Jonas Jarvius, CEO & President]

Yes. So first of all, thanks for the question. I would say, so -- well, in Sweden, we still have some possibility to move quite close by. So of course, we do still plan to do that. We may have had to change our study a little bit there. But as you know, we also have very big, strong hospitals very close by. So we are still planning on working on, on having them been able to use the system even before the clinical study. But as you say, quite clearly, it depends a lot of -- of the situation. Basically, on a day-to-day basis, if guidelines will change or if we see any other restrictions. But we are still working towards that goal, yes.

[Arvid Necander, Analyst]

Okay. Yes. And then, just a second question. So you say that about 1/3 of the upcoming trial, you'll be able to conduct that internally. So can you give any sort of reference on how long do you expect that part of the trial to take in terms of months or something similar?

[Jonas Jarvius, CEO & President]

When we look at the study initially, I mean, if you look at what's been sort of required is that for the U.S. part, we need 3 sites as a requirement for the FDA. We can be one of those sites. In the European situation, you don't really have any regulation on the number of sites you need. We plan to use 2 sites, plus our own site, really, to do this. And if you look at the scope, initially, I would say that it's around a quarter to move through all those testings. And it depends, of course, a little bit on the sort of the stream of prospective patients coming in, which is a part we cannot control. And of course, it also depends on that we still have, as we have today, good access to instant consumables. And of course, that all Q-linea staff is healthy. I mean, the corona COVID-19 situation is going to be a long run. It's not nearly over. So I think also that's something that could change over the upcoming month, but some guidance would be in that order, I would say.

[Operator]

Thank you. And as we have no more questions registered, I now hand back to our speakers for any closing comments.

[Jonas Jarvius, CEO & President]

Well, thank you very much. Thanks for the good questions. And of course, stay safe and keep social distancing, and look forward to talking to you again quite soon.

[Operator]

This concludes our conference. Thank you all for attending. And you may now disconnect your lines.